Tag Archives: sales_risk

Feeling Morally Queasy at Work? Tips for Voicing Your Values

Tuesday, 05 February 2019 18:24
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I’d like to encircle the workplace with yellow safety tape. Long ribbons of it. “Caution! Do not enter!” That would give others an inkling of the dangers lurking within. I’m not talking about back pain, eyestrain, and paper cuts. I’m talking exploitation, harassment, and passive aggression.

I’d use safety tape to protect people from the risks that threaten their personal values. Since 1943, Norman Rockwell’s Rosie the Riveter has inspired workers with her power, ebullience, and obvious self-reliance. Today she’d be tweeting #metoo.

In an uncertain world, we can count on one thing: our personal values will be challenged in the workplace. They will be challenged by what we witness, experience, and are asked to do. Mine have, many times.

Concern over this problem was revealed in a 2001-2002 Aspen Institute  survey conducted on a group of MBA students. “When asked whether they expected they would have to make business decisions that conflicted with their personal values during their careers, half the respondents in 2002 (and more than half in 2001) believed they would. The vast majority of respondents both years reported it would be ‘very likely’ or ‘somewhat likely’ that they would experience this as stressful,” according to Professor Mary Gentile, author of a book, Giving Voice to Values: How to Speak Your Mind When You Know What’s Right.

Predictably, that issue spreads risks across the organization like foul air propelled by the wind. “In 2001, over half of respondents said their response to such a conflict would be to look for another job; in 2002 that number declined to 35 percent, still a significant number.”

Nearly two decades on, the Aspen Institute findings corroborate what I see today: employees are under-prepared for responding when their values are challenged at work. Most business schools don’t teach techniques or approaches, and the few that do present choices through a moral lens that defines or prescribes right and wrong. That turns people off.

Professional development in sales and marketing is no better. Aside from the ambiguous demand, “put customers at the center of everything you do,” practitioners ignore the issue altogether. “Don’t lie. Ever.” Huzzzzahh! Easy to say at the sales kickoff. Looks nifty on PowerPoint. But Job #1 for business developers is customer persuasion. Such admonishments are flimsy, and don’t penetrate the thorny dilemmas employees routinely encounter, like choosing between pressuring customers to buy and keeping their jobs another quarter.

During my career, I have repeatedly contrived rationalizations and reasons for not speaking up when my values have been confronted. I’ve learned I’m far from alone. As we endeavor to preserve a self-image of high integrity, we have cultivated a parallel talent for sweeping concerns and better judgement under the carpet.

Not that business development culture would have it any other way. Put aside that creative mantra for a moment. In my experience, marketing and sales organizations are hives for conformity and group think: “Quit giving excuses!” “I want to know how you are going to sell, not why you can’t!” “We’re not a problems focused group, we’re a solutions oriented group.” “You’re either on the team, or you’re not.” There’s a theme to these edicts: check your personal values at the door before you begin work. Little wonder so many marketing and sales professionals find it nauseating to rock the organizational boat.

Instead of thinking, “well, I’ve already slipped on that ethical slope, so I guess I’ll just continue the slide,” recognizing past imperfections in ethical decision making frees us to move in better directions. There’s nothing to be gained beating ourselves up over workplace decisions that we’d rather re-do. Wearing egg has never been fashionable, but as a practical matter, you can’t hold a conversation about ethical choices if the person leading the discussion cops an attitude of finger-wagging judgment. And I’ve yet to meet a colleague, client, or direct report who doesn’t wear symbolic egg.

Which values challenges do business developers experience?

Pressure from management:

  • “You must not share information with [Customer X] about this defect, because it will delay their purchase.”
  • “We won’t offer [Customer X] the lower market price because it will cause us to miss our revenue target. They’ll never know.”
  • “We can give our customers verbal commitments not to raise their prices, but that information must not be explicit in our contracts.”
  • “When you prospect a C-Level executive for the first time, always make it seem that you’ve had an earlier conversation with them.”
  • “This product has high potential for misuse, but it’s too important to our profits not to aggressively promote it.”

Pressure from prospects:

  • “We haven’t made a purchase decision yet, but if you can promise a better price, I will share [Competitor X’s] proprietary proposal.”
  • “I’m willing to award your company the order, but I need a personal favor . . .”
  • “We need your developers to modify the quality algorithm so the defect rate we report to the government appears lower.”

Since 2014, dozens of companies have been inducted into the Annual Sales Ethics Hall of Shame. Theranos, Wells Fargo, VW, Takada, and Purdue Pharmaceutical became notorious because their business strategies became deeply infected with nefarious intent.

In September, 2018, Theranos announced it was formally “dissolving”, which suggests its downfall was less ugly than it was. Its two senior executives, founder Elizabeth Holmes and Sunny Balwani, were indicted the same year, charged with engaging in schemes to defraud investors, doctors and patients. Takata filed for bankruptcy. Wells Fargo got spanked with onerous restrictions on its asset growth. And VW, well, I’ll never buy a car from a company that gleefully sacrificed my respiratory system to pad their profits.

For all these companies, the proximate cause for their bad fortune wasn’t a cliché risk like rabid competition. It wasn’t warp-speed market disruption. It wasn’t onerous government regulation or economic chaos. Instead, it was unchecked greed.

Opining greed in the C-Suite won’t make it go away. Nor will moaning about high pressure sales tactics. After all, sales forces are predominantly paid on revenue production, and as we know with incentive compensation, the goal is to get what you pay for.

Instead, risk mitigation for corporate malfeasance begins at the grass roots. Employees who are prepared and equipped to voice their values provide the most effective way to stem corporate misbehavior. Put another way, we have met the responsible party, and it is each of us. Time to take the bull by the horns and wrestle it to the ground.

Some tips for voicing your values:

  1. Know what your values are. Write them down – it doesn’t need to be a long or complicated list. Own them. This is essential, because they are yours, and that makes them unassailable.
  2. Believe that your values deserve to be taken seriously. It doesn’t matter whether you’re an intern or board chair.
  3. Prepare yourself for situations where you know you will need to draw the line. This means anticipating challenges such as the ones described earlier and developing a response ahead of time.
  4. Don’t judge the action of others or presume to understand them. If you assume a manager or colleague has malintent, you will come across that way, and will be less likely to change his or her mind.
  5. Invite conversation about the issue. For example, “This doesn’t work for me. I don’t think it’s right. Do you see it differently? Help me understand.” (reference Giving Voice to Values, page 157).
  6. “Frame choices in ways that align them with broad, widely-shared purpose.” (Giving Voice to Values page 159). It’s easier to redirect a problematic request when you can gain consensus on a larger goal.
  7. Craft a description that focuses on the advantages of your recommendation or role, rather than the disadvantages.
  8. Practice, practice, practice your responses to values challenges. Reflect on your experience and that of others, figure out what you’ve learned, hone your tactics, and practice some more.

“Once we identify the common challenges in our particular line of work, it is especially useful to look for and note any examples of individuals who have effectively voiced and acted on their values in this type of situation,” Professor Gentile writes. Examples are abundant online. It’s also important to familiarize ourselves with common rationales for not resisting. The top four, according to Giving Voice to Values,

 

Expected or standard practice: “Everyone does this, so it’s really standard practice. It’s even expected.”

 Antidote question: “If the practice is accepted, why are there often rules, laws, and policies proscribing it?”

 

Materiality: “the impact of this action is not material. It doesn’t really hurt anyone.”

 Antidote question: “Does the apparent small size of this infraction make it any less fraudulent?”

 

Locus of responsibility: “This is not my responsibility; I’m just following orders here.”

 Antidote question: “Is the issue likely to cause significant harm, and are there few (or no) others able to act to prevent it?”

 

Locus of loyalty: “I know this isn’t quite fair to the customer but I don’t want to hurt my reports/team/boss/company.”

 Antidote question: “Am I being truly loyal to the company if I perform this task/operation/process and it undermines trust and credibility?”

Paraphrasing the immortal words of Glenda, the Good Witch from The Wizard of Oz, “You’ve always had the power to act on your values, my dear. You just had to learn it for yourself.”

“We are beginning from the position that we want to act.” Professor Gentile writes. “Therefore we are trying to answer the question: “How can we do so most effectively?”

Revenue Growth: Don’t Let the Funnel Fool Ya!

Wednesday, 16 January 2019 16:56
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Sales funnels symbolize a widely-known reality among marketers: s*** happens.

Funnels instantly remind us that interactions between buyers and sellers are fraught with risks – not that we need any reminding. Funnels also represent our fear that we can assiduously attempt to convert a prospect to a customer, but lo, there’s a chance we won’t prevail.

I like funnels because they are easy to understand. Funnels mansplain uncertainty and risk. When you need to justify a pipeline multiplier, or reveal the rationale behind a multi-channel lead generation campaign, simply fire a 2-D trapezoid shape onto the projection screen. Divide the image into equally-spaced horizontal stripes. Use bright colors. Then, dive into funnel taxonomy.  “Raw prospects enter the gauntlet at the top. From there, they undergo a metamorphosis, becoming Leads, then MQL (Marketing Qualified Leads), then SQL (Sales Qualified Leads). Those that emerge will be anointed as Opportunities before moving south, eventually crossing into a hallowed zone marketers call Paying Customers.” My presentation includes a bloated money bag positioned near the funnel’s bottom to drive home the idea. The screen glows even brighter. Warmth envelops the room. This is everyone’s favorite topic.

You already have recognized that my scenario is called The Happy Path. Happy paths, as we know, make people happy. Everything on the slide is linear. Everything is ordinal, with a prominent, single-headed arrow to emphasize the direction of actions, activity, and interest. The partitions between funnel stages are always crisp and distinct. “Questions? . . . No? Great! Let’s move on . . .”

I advance to the next slide to continue my speil when inevitably, someone – often a new hire – lobs a question with the antecedent, “What about . . .” I’m prepared. I press the “back” button, and ask, “Was there a question about the funnel?” Indeed. Many questions, actually. A partial list of ways to complete the interrogative:

. . . Lead qualification and disqualification, changed priorities, low buyer motivation, misaligned or insufficient sales incentives, faulty CRM data, lack of project funding, buyer fear, seller fear, redirected budgets, raised customer expectations, increased ROI hurdles, misunderstood needs, bad assumptions, new assumptions, strategic re-prioritizations, project starts-and-stops, buyer confusion, atrocious sales processes, predatory buying, industrial espionage, new decision hierarchies, flawed business intelligence, process breakdowns, competing internal agendas, technological innovation, tariffs, product recalls, spikes in monetary exchange rates, increases in the cost of capital, mergers and acquisitions, personnel changes, passive aggression, essential conversations that never materialized, relationships gone awry, cruddy demos, software bugs, regulations, external competitive maneuvering, internal competitive maneuvering, and stupid tweets from anyone with access to the company’s “official” Twitter account  . . .”

I don’t consider any of this the Unhappy Path. I call it Life. Here’s the problem: beyond their purpose for symbolizing risk, funnels don’t represent the myriad conditions companies encounter when executing revenue strategy and tactics. These examples obliterate the template funnel’s shape, and shatter that straight North-South arrow into countless, itty-bitty pieces.

For me, the funnel’s most meaningful features are its taper and length. The angle degree at the top should invite concern, interest, and discussion. “Our funnel is wide as a tank container at the top and narrow as a pipette at the bottom, and it takes one year to travel from top to bottom. Perhaps we’ve found the root cause for our cash flow problems.” In practice, few seem interested in dissecting the risks that cause the delta, and how to manage them. A funnel is a funnel. Counter-intuitively, the funnel’s ubiquity as a risk symbol has made us less risk aware.

Time for a fresh look.

Twitter abandoned its egg silhouette in 2017.  Assuming their objective was to render a human-ish image, the replacement – two detached shapes that faintly suggest a human head and shoulders – offers scant improvement. Imagine what we’d be purchasing if design engineers adopted such anonymized forms to use for prototyping. I suppose we’d have a visceral understanding of what daily life was like in the 1700’s. Similarly, how can companies create revenue strategy when using generic funnels as design templates?

Overlooked differences. At best, funnels suggest risk in marketing and sales. But they don’t mirror reality. I love Roadrunner cartoons, but for my safety and that of others, I resist letting them inform my understanding of physics.

Three real-world deviations from the funnel symbol:

  1. Pathway

Prospects enter sales funnels at many different points, not just at the top. Sales funnels are highly porous, and exit points vary, too.

  1. Re-cycling

Not every lead remains permanently outside the funnel. Prospects that have exited the sales or buying process can re-enter.

  1. Effort

Opportunities in sales funnels generally don’t drop from top to bottom on their own. As leads descend through the funnel, effort and costs increase for both sellers and buyers. In fact, if funnels reflected aggregate cost of sales, the model would be exactly flipped – small at the top, and large (or very large) at the bottom.

. . . And two overlooked similarities:

  1. Connectedness

As cash engines, revenue funnels are connected in several ways to the organizations they serve. They are not free-floating in space, as they are often depicted in presentations. Marketers implicitly understand that revenue funnels often receive inbound leads from a messy universe of opportunities, and that revenue flows from the bottom. But marketing funnels are but one component of a large system. They require additional input such as cash, information, talent, and other resources to operate.

  1. Throughput

With physical funnels, smooth material flow from top to bottom signal that the funnel is operating well.  But marketers often defer to a flawed proxy for funnel health: fullness. The problem is, full funnels can also be clogged. Rather than using funnel fullness as portents for cash-flow vitality, marketers should emphasize velocity and throughput as meaningful metrics.

 

General recommendations for funnel management: 

  1. Make sure the funnel opening is as wide as it needs to be, but no wider.
  2. Match the size of the opening at the bottom with the company’s revenue needs. That includes ensuring orders won’t swamp the company’s ability to fill them.
  3. Don’t take the taper for granted! Make sure it aligns with the company’s risk capacity.
  4. For planning purposes, net the funnel’s cash output against the resources required to operate it.
  5. Remember that throughput velocity is as important to consider as overall funnel value.

I’m not declaring funnels dead. Not by a long shot. The marketing and sales profession has long suffered from lack of probabilistic thinking, and funnels offer a symbolically-accurate representation of revenue generation risk.

Put another way, a picture that tells us  s*** happens is worth a thousand words.

Nike and Kaepernick: Oh Baby, Show Me The Money

Wednesday, 05 September 2018 17:55
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I’ve often wondered why companies hammer sharp social stakes into the ground. Ben and Jerry’s. Hobby Lobby. Chick-fil-a. Lately, Levi’s – my jeans brand – has advocated for gun restrictions. Gasp!

Ardently promoting a social agenda is antithetical to what I’ve learned about marketing. Don’t alienate people with disposable income or investment capital. Better yet, don’t alienate anyone! Just sell. As one sales rep told me, “if there was a society for people with six toes, I’d join it to mine for prospects.” A man after my own heart.

In over 40 years as a marketeer, I’ve yet to work with an organization that has purposefully promoted social values to its prospects and customers. It’s easy to understand the rationale for remaining scrupulously agnostic: when a customer intends to buy, make it easy for them. Don’t screw things up by injecting politics and personal morals into the mix. Buyers and sellers, let’s just coexist as one big, happy egalitarian value chain. Sunshine, puppy dogs, and daisies. Sometimes, when business is left alone, things do work out for the best for society. Sigh . . .

Back to reality. Social values do influence a vendor’s marketing actions, and when that happens, it can be alarming. Bakeries that turn away gay customers. Restaurants that refuse to serve unpopular political appointees. And Nike featuring Colin Kaepernick in its ads. These events shake our assumptions to the core. How does this happen? Enterprises that eschew revenue uber alle? Criminy! What’s next? Selling without trust? Maybe things are changing faster than ever.

For marketers, the main story isn’t whether Nike endorses Kaepernick’s free speech rights. This is about how to use risk as a competitive weapon. Take notes, because succeed or fail, we’re about to benefit from a powerful lesson. Although Kaepernick is a polarizing personality who doesn’t play for an NFL team, he’s among the most recognizable sports personalities on the planet. For marketers, that alone makes him tantalizing to incorporate into a campaign. Not surprisingly, Nike was not the only company to find Kaepernick attractive for its advertising. Earlier this year, Puma and Adidas dabbled with the idea. But Nike jumped on the opportunity. A deft move. Nike has never been a company that looks a gift horse in the mouth. And it showed up when Kaepernick became the centerpiece of a mounting protest that had both controversy and appeal.

Nike’s choice to use Kaepernick speaks volumes about their brand promise, the customers they want to reach, and their strategy for revenue growth. To use a trite sports metaphor, it’s called “skate to where the puck will be.”

And where the puck will be is spelled m-i-l-l-e-n-n-i-a-l. By 2019, Millennials, Americans between 22 and 37 years old, are projected to become the largest US demographic, surpassing my generation, baby boomers. And – fun fact– 44% of Millennials are non-white. Post-Millennial, the non-white ratio increases to 48% and post-post Millennial (kids who are currently under 10 years old), it’s 50%. You don’t have to be a math whiz to extrapolate the trendline. And you don’t need to be a social scientist to project which brand attributes future buyers will value. If I were in Nike’s executive suite, I’d bet on Kaepernick, too. And believe me, I’m no willy-nilly risk taker.

Millennials are “very different than earlier generations,” according to demographer William Frey, author of Diversity Explosion: How New Racial Demographics are Remaking America.  As sports columnist Sally Jenkins wrote in The Washington Post (Nike Knows What the Future Looks Like, September 5, 2018), “They are more prone to interracial marrying, friendlier to immigration and often want their consumption to have a social component. If Nike is willing to offend its graying buyers in order to court these multiple generations with a racial justice campaign, ‘it’s a good bet that a lot of younger people will be attracted and go along with that,’ Frey said.” Yepper.  56% of Millennials said they found the Kaepernick’s anthem-kneeling protest appropriate. Someone needs to figure out how to parlay that into revenue . . .

Nike is betting that younger, active buyers will also continue to buy lots of athletic shoes and athletic wear, and with Kaepernick tied to the brand, they have given them greater reason to identify with Nike. And of course, it doesn’t hurt that Nike’s NFL contract will propel that distinctive swoosh logo onto millions of viewing screens this fall.  I picture commissioner Roger Goodell slamming his head against the wall as I type this. Woulda, coulda, shoulda . . . I think you did this to yourself, pal.

With Kaepernick, Nike has alienated older buyers and Republicans, who overwhelmingly find his anthem protests objectionable (only 10% of Republicans approved, according to a Wall Street Journal article, Nike Faces Kaepernick Backlash). No doubt many of them have already torched their shoes at the end of their driveways. But Nike has clearly set its sights on high-use consumers: Millennials who grind through athletic footwear like popcorn, by skateboarding, running marathons, or walking to an Uber pickup spot after the concert downtown. They’re less interested in appealing to my fellow boomers who spring for a shiny pair of white sneakers to wear on the cruise, or to walk the ultra-smooth sanitized floors at the mall. Those shoes will look pristine forever. Yawn.

Nike, which coined, Just do it, knows its customers desire more than shoes and apparel. They want inspiration, which is already embedded in the brand. And the company’s big hairy audacious bet is that a sizable chunk of the world’s population will align with Colin Kaepernick for his resolve to take an unpopular, but principled stance. That’s an American theme, shared globally. The bet carries risk, but it’s an intelligent choice. I predict that Nike will weather the backlash and reap financial rewards. Not every company has the backbone, brand equity and financial capacity to sustain the problems, and I have no doubt the depth of Nike’s risk capacity played a role in the company’s decision concerning Kaepernick. Assuming Nike wins, their campaign will inform marketers that risk isn’t something to tremble about. When used strategically with proper intelligence, it can become a powerful competitive weapon.

Is the Voice of Risk Being Heard?

Tuesday, 31 January 2017 18:47
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“If only HP knew how much HP knows, we would be three times more productive,” Hewlett-Packard CEO Lew Platt said.

Had Mr. Platt been talking about his sales organization, he would have pumped up the multiple. Sales teams possess a trove of valuable commercial knowledge. It’s not unusual to find reps who are fluent in finance, marketing, strategy, product engineering and customer support. Some have lived or studied abroad. Some are multi-lingual. Add street smarts about customer behavior, and you’ve got formidable brainpower.

Good for customers, but a mixed bag for employers. Knowledge and risk awareness go hand-in-hand. That can threaten mangers, especially when assigning individual quotas and sales targets. A bit less knowledge makes team members more compliant. Naivete makes management’s fuzzy planning numerology and “stretch goals” easier to swallow. “Team! Get out there and nail your quota!” Woe to the salesperson who tells her boss, “I have a 70% chance of making my number.” In sales culture, determinism is revered while probabilistic thinking gets ravaged.

More! Faster! Better! In this make-your-number-no-matter-what environment, the voices of risk get stifled. Problems don’t surface. Issues remain under wraps. Objections aren’t discussed. “We need to keep meetings short and use our time efficiently,” senior sales executives tell me. “Besides, we aren’t interested in dealing with stuff we can’t change.” Yes . . . But . . . There are significant hard costs when management cannot assess vulnerabilities, let alone, even know what they are.

More than ever, organizations need to be intelligent about uncertainty and risk. Something that former Wells Fargo CEO John Stumpf didn’t appreciate before he landed in a hot seat in front of Senator Elizabeth Warren, who eviscerated him with questions about his company’s widespread abuses. Stumpf got so flummoxed, he could hardly speak. Senator Warren provided most of the answers, too.

In fact, Stumpf’s management team brutally crushed the voices of risk as a way to insulate themselves from what was happening in the field. Using a cudgel called U5, management silenced internal dissent, enabling Wells to implement practices that exploited its customers and employees. U5, a federal form, was intended to prevent financial services employees who commit fraud and other violations from hopping from firm to firm and repeating their transgressions. But Wells Fargo’s management warped U5’s beneficial purpose to intimidate sales employees into submitting to their heinous demands.

When slapped onto an employment record, U5 carries serious consequences. To hiring managers, it means “don’t hire this candidate.” To employees, it means “Move to a Caribbean island and open a sunglasses stand because you’re not working in financial services. Not now. Not later. Not ever.” U5 made it possible for Wells Fargo’s Management to deliver an ominous message to its staff: if you have the temerity to speak out, blow the whistle, complain, resist, or express unhappiness or unwillingness, we will ruin you. And they meant every word.

We will never know with certainty which statements got silenced, but here are a few possibilities:

“These goals are impossible.”

“My customers don’t like our policies.”

“I’m uncomfortable doing this. It’s unethical.”

“The stress here is burning me out and making me sick.”

“No. This is wrong.”

The voice of risk, U5’d. A well-known verb in the bank’s HR Department, I am sure. With U5 and the repressive sales culture at Wells Fargo, untold millions of similar comments never reached the vocal chords – and keyboards – of its employees. A tiny few seeped out. Just not enough to awaken regulators and Wells Fargo’s board of directors from their slumber. It took an outsider’s report – an investigative article in the LA Times – to goad anyone into action. If you want to crush the voice of risk, here’s your model!

Voicing risk, pushing back, calling out red flags, blowing the whistle – use any terms you want. Wells Fargo used the threat of severe punishment to systematically turn off every communication management didn’t want to hear. An extreme case, for sure, but far from isolated. Where there’s disdain for knowing the truth, a company’s sales culture will reveal it:

“Sell what we’ve got!”

“I don’t want to hear how you aren’t going to make your number, I want to hear how you are!”

“Don’t give me problems. Give me solutions!”

“Stop making excuses!”

“Quit whining!”

One of the most effective ways to shut down the voice of risk is to brand an employee “not a team player,” or “doesn’t believe in the company’s potential.” It’s not U5, but punitively, it might be the next best thing. Try getting promoted or landing a better sales territory with those tidbits embellishing your personnel record. Management’s message: “if you want to stay here, do as we say, and don’t rock the boat.”

“But . . . nobody wants a department full of Chicken Littles, either!” Fair point. There are clear strategic advantages to being picky about the information one accepts before making a decision. Managers must be granted the flexibility to determine what’s useful and valuable, and what to eschew. After all, in sales and selling, there are no universally recognized standards for framing the truth. Look at any B2B sales organization, and you’ll see different managers using different dashboards, and no two turning the same dials and knobs. Vive la difference!

Yet, there’s a distinction between healthy selectivity and willful ignorance. Sales culture should never be an accomplice to the latter, yet the problem is epidemic. The annals of corporate failures are littered with companies that subdued the voices of risk, and created horribly skewed versions of reality. “Employees are our greatest asset! Amazing that none of them are doubters or naysayers!”

Make sure the voices of risk are not silenced at your company. That begins with the board. In an article, Culture: The One Element Most Critical for the Board’s Management of Risk , Jay Taylor, CEO of EagleNext Advisors, recommends six questions to ask:

• Is the CEO active in creating the culture for the organization? Is he or she modeling the right behaviors?

• Is there appropriate tone at the top, both during and outside of board meetings?

• During strategy, product, and investment discussions, is there transparency around business assumptions, openness to respectful but challenging views, and identification of emerging risks to the business model beyond the immediate planning horizon?

• Is there a willingness to bring forward bad news? Is there an understanding that failure may occur, but the business cannot grow and prosper without taking smart risks?

• Has the board established clear expectations for timely identification and handling of risk, particularly those around business goals and objectives? Is there clear risk ownership?

• Not everything should be filtered through the CEO. Are other executives and risk owners present at board meetings and allowed to take questions directly?

The answers to these questions directly influence the culture within the sales force. They influence the strategy, tactics, compensation, and measurements under which business development teams operate. When salespeople believe that the board views risk management, governance and compliance as a crucial responsibility, an ethical environment can be established within the sales organization. The converse is also true: when it’s evident the board doesn’t want to be bothered with protecting the company’s stakeholders, [stuff] will happen. We saw how that works at Wells Fargo.

In addition,

1. It’s understandable that not every anecdote from the sales force constitutes an “action item,” but make sure it’s clear that salespeople will not be penalized for voicing issues to management.

2. Don’t limit account reviews to “wins.” In meetings and internal communication, allow frank discussion about what impedes selling, and make sure no person or department is held sacrosanct in the conversation.

3. Don’t condemn people for probabilistic thinking. Instead, embrace the approach! That won’t make anyone less determined, resolute, or rabidly goal-focused. In fact, the sales team and its managers will become more risk-aware.

4. Appoint at least one board member to serve as a direct point-of-contact for salespeople who want to elevate concerns about illegal or unethical practices, or any other activity that endangers the company, its employees or its customers.

Uncork the knowledge that exists in your sales organization. Giving risk a voice, and a safe way to express it, provides a measurable financial return. And in the case of Wells Fargo, it could have saved the company from itself.

Anatomy of a Scam: Wells Fargo’s Treachery Can Happen Anywhere

Wednesday, 21 September 2016 16:08
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If you knew your customers were being deceived, why didn’t you stop it?

If you didn’t know, why?

As Wells Fargo CEO John Stumpf knows, it’s a bad day at the office when any answer you give is wrong. His company got slapped with a $185 million fine from the US government, and is now the subject of a Federal fraud inquiry. As of this writing, Wells Fargo has neither admitted nor denied the allegations.

But Stumpf’s responses to Senator Elizabeth Warren’s questions during a congressional hearing today didn’t go well. In an exchange that will be studied in B-school leadership and ethics courses for many years, Senator Warren eviscerated him. “It’s gutless leadership,” she said. “You should resign.” Stumpf had no response.

“How probable is it that you would have a firm-wide, multi-year scheme involving thousands and thousands of people that senior leaders weren’t aware of,” Jordan Thomas, a former Justice Department trial lawyer, asked last week. Answer: not very. As financial journalist Roger Lowenstein quipped, “[5,300] people don’t just wake up in the morning with the same bad idea.”

Stumpf said he “feels accountable” for the fraud that Wells Fargo allegedly committed, but added that employees didn’t honor the bank’s values. Mr. Stumpf, I have a suggestion: The best response is “I am accountable. Period.” Not, “I am kind of accountable, but here’s how my underlings screwed up . . .” A leadership coach would charge a large fee for that advice. I offer it for free.

It’s hard to know what’s more odious – Stumpf’s mealy “feels accountable” lamentation, the deceit that Wells Fargo committed underneath its imperious-sounding Vision and Values Statement, or the fact that 5,300 Wells Fargo staff lost their jobs for engaging in practices that overwhelmingly enriched its senior executives. Who, by the way, are all still employed.

Regardless, it’s disgusting to see Stumpf’s smiling face on the Vision and Values web page, next to his mendacious quote, “Everything we do is built on trust. It doesn’t happen with one transaction, in one day on the job or in one quarter. It’s earned relationship by relationship.” Odd that his picture doesn’t show him wearing a loud plaid sport jacket, open collar shirt, and a cheap gold necklace.

Wells Fargo’s Vision and Values Statement includes a section on ethics:

“Honesty, trust, and integrity are essential for meeting the highest standards of corporate governance. They’re not just the responsibility of our senior leaders and our board of directors. We’re all responsible. Our ethics are the sum of all the decisions each of us makes every day. If you want to find out how strong a company’s ethics are, don’t listen to what its people say. Watch what they do.”

We now know this paragraph is just well-crafted marketing horse poop. While Wells Fargo proudly displayed it to the world, its senior managers put employees under their boots, pressuring them to sell, sell, sell! We’re just starting to learn how they did that, and it ain’t pretty.

Under its Vision and Values, the company lists six priorities. Numero Uno: Putting Customers First:

“We put our customers at the center of everything we do and give them such outstanding service and guidance that they’ll give us more of their business, honor us with repeat purchases, and rave about us to their family, friends, and business associates. We want to be the first provider our customers think of when they need their next financial product.”

Immediately below the Customers-first priority lurks the second priority, Growing revenue. The smoking gun that destroyed the first:

“Wells Fargo is a growth company that believes the key to the bottom line is the top line. “We see opportunities to continue increasing revenue across all of our businesses and serve more of our customers’ financial needs. For example, we want more of our retail bank customers to consider us for their brokerage and retirement needs. And we want to continue expanding the number of customers who have a mortgage or credit card with us. We also want to be the bank of choice for our business, commercial, and global customers.”

No joke. Forget soft-sounding platitudes like consider and be the bank of choice. Wells Fargo means every word about their strategic intentions. “Cross selling and aggressive sales tactics are core to company’s business model . . . Sales goals were huge,” according to Wall Street Journal reporter Emily Glazer, who has covered this story. Whereas most banks average three accounts per customer, Wells Fargo established a sales target of eight. Why? “Eight rhymes with great.” A catchy jingle that Wells Fargo included in their 2010 annual report, which Senator Warren used to lambaste a speechless Stumpf.

This is a sales scam that happened at a bank – not a banking scandal. A scam that could happen anywhere. All you need are the right ingredients: 1) manic focus on growing revenue 2) substantial bonuses tied to stock price, 3) misaligned sales incentives, and 4) weak internal governance. Voila! A putrid, fecund environment for a sales scam. It doesn’t matter whether you’re hawking financial services, precision electronics, IT outsourcing, or anything else.

Show me salespeople repeatedly engaging in bad sales practices, and I’ll show you a manager responsible for it. For investigators, the spotlight shines on Stumpf and Carrie Tolstedt, the bank’s former head of retail operations, who announced her resignation in July. Ms. Tolstedt, 56 years old, plans to retire this December. In her role as head of retail operations she had responsibility for Wells Fargo’s business with 40 million retail banking customers, and “led the bank’s efforts to cross-sell products to individual customers. Sales goals connected with cross-selling also fell under Ms. Tolstedt’s remit. More than three dozen current and former Wells Fargo employees told The Wall Street Journal that those goals defined the retail bank’s culture and led many staff to engage in practices that are now under question,” according to a September 20 Wall Street Journal article, Wells Fargo Official in Eye of Storm. Ms. Tolstedt’s compensation in 2015 was $9.05 million, according to the bank’s 2015 proxy statement. When she retires from the company, “she will collect a pay package valued at $112.9 million.” Enough to pay for a decent lawyer.

Known internally as ‘the watchmaker’ for her attention to detail, Tolstedt earned high praise from Stumpf, who called her “a standard-bearer of our culture, a champion for our customers, and a role model for responsible, principled, and inclusive leadership.” I understand why. Until early 2015, Wells Fargo posted 18 consecutive quarters of year-over-year profit growth. But given the bank’s current ignominy, Stumpf’s laudatory words for might be a bitter pill for those who were summarily fired for “underperformance.” As Senator Warren pointed out, a teller who steals a handful of $20 bills from the cash drawer would go to prison. In her view, Wells Fargo Executives perpetrated a more heinous crime, and have so far escaped prosecution.

A trick for driving revenue: manipulation and deceit. A revenue scam such as Wells Fargo’s always involves exploitation of trust. There are typically two categories of victims: sales staff and customers.

Exploiting staff. A district sales manager once told me, “I look for salespeople who have a mortgage, a stay-at-home wife, a baby, and another on the way.” Translation: “I need people I can control like a marionette puppet.” Wells Fargo pulled the motivation strings with a vengeance. “[Wells Fargo management] are putting pressure on employees, and it’s sad. People need their jobs,” said Mita Bhowmick, a former Wells Fargo teller in Pennsylvania, who took early retirement in 2014.

In the coming weeks, we’ll hear painful testimony from many current and former employees. People with limited job mobility. Single mothers and fathers struggling to pay rent and household bills. Adults supporting an elderly parent. Those living in communities where few job alternatives exist. They will share stories about onerous quotas, “stretch goals,” and living under the constant threat of demotion and firing. They are the among the people that Wells Fargo ruthlessly took advantage of to achieve their aggressive performance metrics.

“The bankers churned the accounts. They didn’t produce profits. They did it because of a misaligned incentive system. The [sales staff] made a minimum wage and could only make more if they duped customers,” Ed Mierzwinski of the US Public Interest Research Group said in an NPR interview with Jane Clayson (Scandal, Sham Accounts at Wells Fargo).

With sales commissions, you get what you pay for, and more. “Wells Fargo built an incentive-compensation program that made it possible for its employees to pursue underhanded sales practices, and it appears that the bank did not monitor the program carefully,” said Richard Cordray of the US Consumer Financial Protection Bureau.

Exploiting customers. Putting customers – especially the naïve or vulnerable – under the influence of a salesperson with devious intentions creates a sickening business relationship, and constitutes a serious abrogation of trust. Regulators have accused Wells Fargo of collecting millions of dollars in fees from customers for accounts they never authorized, a practice alleged to have started as early as 2011. “This widespread practice gave the employees credit for opening the new accounts, allowing them to earn additional compensation and to meet the bank’s sales goals . . . consumers, in turn, were sometimes harmed because the bank charged them for insufficient funds or overdraft fees because the money was not in their original accounts,” the Consumer Financial Protection Bureau said in a statement.

According to a former Wells Fargo employee, “The customers were told in phone calls that Wells Fargo planned to send them a new credit card as a ‘thank you’ for their business. If a customer didn’t want the card, he was told to cut the card when it arrived in the mail.”

Damaged credit scores, inability to qualify for loans, missed opportunities for a college education, unfulfilled dreams. None of these devastating customer outcomes mattered to Wells Fargo executives, as long as the company’s stock price was on a positive trajectory.

Finally, in addition to the other conditions, a successful sales scam requires another crucial cultural element: fear. Above all, management must crush dissent and opposition. There are proven ways. “If somebody said, ‘This doesn’t make sense. Where are you getting these sales goals?’ then [the response] was, ‘No, you can do it’ or ‘You’re negative’ or ‘Oh, you’re not a team player,’” said Ruth Landaverde, a former Wells Fargo credit manager.

There’s a difference between telling people you’re responsible, and acting responsibly.

During today’s congressional hearing, Senator Warren netted CEO Stumpf’s action – or inaction – in the wake of his company’s scam. Stumpf

1. has not resigned from his position as CEO,
2. has not returned “one nickel” of bonus or stock gains he received while the scam was taking place (Sen. Warren calculated his personal gain to be $200 million),
3. has not fired a single senior manager or C-Level executive.

So much for “feeling accountable.” Meanwhile, Stumpf has already impugned the bank’s staff for not upholding Wells Fargo’s values, and under his watch, 5,300 employees were fired for “inappropriate sales practices.”

If there was ever a time for a board to can a CEO, claw back his bonus money, and tell him never to return, now would be it. I hope Wells Fargo’s board does the right thing. But that’s doubtful. The board knew about the cross-selling problems as early as 2013. Some people believe the board should have recognized the risks that that the bank’s pay and bonus plans would bring.

Just as important, I hope the governance reforms that ensue from this case will permeate into industries outside banking. The “perfect storm” for a scam can corrupt any business.

Author’s note: I first wrote about Wells Fargo’s sales tactics in May, 2015, for an article, Teach Your Sales Force Well: Learning from Pay-for-performance. The article contains a link to a 2013 LA Times article by Scott Reckard, Wells Fargo’s Pressure Cooker Sales Culture Comes at a Cost.

In November 2015, I inducted Wells Fargo into my Sales Ethics Hall of Shame. The company has lived up to this dubious honor.

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